The Logic of DeLong Care
My brief post from Thursday trying to explicate some of Brad DeLong’s synthesis of the best ideas in health care economics detached from political reality prompted some interesting discussion in comments. And I thought I might elaborate on the idea, because some people’s objections seemed to be grounded in misunderstanding.
For one thing, it’s crucial to recognize the role that the clinics are playing in this system. There’s considerable evidence that there’s a lot of waste in our health care system, and there’s also considerable evidence that making people bear the cost of care utilization directly is, in fact, effective at reducing that waste. But one obvious problem with that is that there’s also a lot of kinds of care on which we don’t want people to economize, especially when you consider that taxpayers generally are going to wind up picking up the tab for health problems that are catastrophic or that manifest themselves in old age. Hence the idea for a UK-style, taxpayer funded system of government-salaried medical professionals doing routine preventive care.
To figure out exactly what this would look like you would need, of course, to consult with doctors and public health experts. But the general idea is that you’d have a menu of services that we really think people ought to get, and those services would not only be made available for free, people would to some extent be nagged to get them. That’s your vaccinations, your demographically appropriate cancer screenings, your doctorly advice about healthy behavior, your basic dental hygiene, your regular checkups, etc. The idea is that for people who aren’t sick, this public health system dedicated to doing its best to ensure that you don’t become sick would be your main source of medical care.
Then note that the 15 percent health withholding is not a 15 percent tax. Most people will spend less than 15 percent of their income on health care in most years. If so, your money will be returned to you. Because there’s reason to believe that Americans save too little for retirement and also reason to believe that default rules matter a lot, the default rule would be for the money to be returned to your and placed in a retirement account. But if you need or want the money, you’d fill out form 1346-FGH or whatever and get the cash.
In addition, note that people’s cash income would be a lot higher in a universe without health insurance plans and Medicare taxes. That’s a hefty chunk of your compensation.
Last, this plan is a lot more progressive in its distributive implications than the flat tax rates involved imply. Consider two guys who both contract the same illness. It winds up requiring $20,000 in treatment. A person who only earns $30,000 a year is going to find himself paying $4,500 out of pocket whereas someone who makes $100,000 will pay $15,000 out of pocket. The taxpayers will cover his last $5,000 in expenses, but he’ll also be paying $5,000 in taxes. Conversely, the $30,000/year guy is getting $15,500 in government benefits and paying only $1,500 in taxes. In other words, the tax structure is pretty flat but the benefit structure is highly progressive so the net impact is very progressive.
There’d be nothing wrong with implementing a more progressive tax structure, but in practice progressive universal benefit systems (Social Security in the US, health care and pensions in Europe) are usually funded through flat (or, like FICA, even regressive) tax structures.
28 Responses to “The Logic of DeLong Care”
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July 18th, 2009 at 12:59 pm
You can’t post without pictures or charts MY.
I couldn’t even finish reading this one. But, I probably agree.
July 18th, 2009 at 1:20 pm
As long as it’s not form 27B/6, then it shouldn’t be a problem.
July 18th, 2009 at 1:38 pm
Speaking as someone who had an MRI, a CT scan, an ECG, an EEG and a colonoscopy in the past 2 weeks, I think there should be some kind of french-style chronic illness exemption.
July 18th, 2009 at 1:38 pm
Perhaps you should address why the catastrophic coverage would be provided by single payer. Your plan seems similar to Will Wilkinson’s plan except he would make the catastrophic coverage risk rated insurance that you bought from insurance companies. He would then subsidie insurance for people who couldn’t afford it. I think he probably believes that the insurance companies would find a way to get people to do preventive care. I think the main difference is that you have a more paternalistic approach to health care nad possibly that you think sicker people should be subsidized by healthier people.
July 18th, 2009 at 1:39 pm
In other words, we should adopt Singapore’s health care system.
July 18th, 2009 at 1:47 pm
Somewhat better, but it still assumes that people can do without 20% of their income for most of the year until they can get it back.
In regards to regressive taxation, this seems to be a weird and recurring flaw in Yglesias’ progressivism. Needless to say, I would note that description is not proscription – that European states have historically funded social welfare systems through flat (which I would argue is effectively regressive) taxation does not mean that they should be. Those policy decisions were usually made a long time ago under very different political circumstances, and are by no means set in stone. For example, in France, one of the major policy differences between the UMP and the FSP is that the FSP has historically striven to reduce flat taxes (payroll and VAT mostly) while increasing progressive taxes (income and cap gains mostly).
Why should the United States make the same mistake that Europe made 50 years ago out of the mistaken assumption that having a VAT leads to more social spending ipso facto?
July 18th, 2009 at 1:58 pm
In addition, note that people’s cash income would be a lot higher in a universe without health insurance plans and Medicare taxes. That’s a hefty chunk of your compensation.
This is interesting to me. Most people today have no idea how much money their employer pays for their health insurance (if they are lucky enough to get it).
Thus, under this system, absent regulation, I suspect people would just end up getting a pay cut, as employers would be quite willing to stop paying for employee’s health insurance, yet keep that extra money for themselves.
You’d have to force employers to pass those savings onto employees, because it would be very easy to just “forget” to give employees that compensation back, since most employees have no idea how much that compensation was to begin with — many employees don’t think of health care as quasi-monetary compensation, they think of it as a service with an unknown cost. And the service is still going to be provided them!
So that 15% mandatory health savings account would quite possibly end up feeling just like a 15% tax if employers weren’t regulated about how the dealt with this.
[Enter magical-mystical free market "thinkers" to tell me how the market would magically sort all this out with its infinite rationality and powers of perfect optimization.]
July 18th, 2009 at 1:59 pm
What about this: every year 3 US citizens with highest net worth get publicly executed. One can reduce his/her net worth by donating to the medical care fund. That’s it, that’s the plan. I like this plan. Seriously, I do.
July 18th, 2009 at 2:09 pm
Consider two guys who both contract the same illness. It winds up requiring $20,000 in treatment. A person who only earns $30,000 a year is going to find himself paying $4,500 out of pocket whereas someone who makes $100,000 will pay $15,000 out of pocket.
What Steven Attewell said. Also, $20,000 doesn’t really buy much healthcare these days. Suppose Illness X requires $40,000 in treatment. Mr. $30,000 is going to pay $10,000 out of pocket. And almost none of the people I know who make $30K/yr have the resources to do that.
July 18th, 2009 at 2:28 pm
James Gary Says:
July 18th, 2009 at 2:09 pm
Consider two guys who both contract the same illness. It winds up requiring $20,000 in treatment. A person who only earns $30,000 a year is going to find himself paying $4,500 out of pocket whereas someone who makes $100,000 will pay $15,000 out of pocket.
What Steven Attewell said. Also, $20,000 doesn’t really buy much healthcare these days. Suppose Illness X requires $40,000 in treatment. Mr. $30,000 is going to pay $10,000 out of pocket. And almost none of the people I know who make $30K/yr have the resources to do that.
How so? Anything beyond the 15% per year he is “saving” is paid by the government. The most in any year he can pay is $4500; if he doesn’t, he gets whatever remains back. Plus, he of course pays the $1500 in taxes to the system.
July 18th, 2009 at 2:28 pm
It’s a fantastic plan for a world populated by homo economus.
July 18th, 2009 at 2:45 pm
abb1,
I admire your can-do spirit, yet I fear your plan would be tough to get past a filibuster. But your idea of mandatory donations got me thinking. Private foundations (set up by rich families for both philanthropic and tax avoidance reasons)) are required to pay out 5% of its capital every year in charitable spending.
One way to minimize the wealth gap would be to treat rich people like foundations. Give them the choice of donating 5% of that portion of their wealth exceeding a set threshold ($20 million, $100 million?) to charity every year or write check for that sum (less any actual donations) to the IRS by April 15. You’d have to be one lazy billionaire to ever give the IRS a cent.
Oh yeah, Matt’s Singapore plan is nice and all but if the government forces everyone to forego 20% of income (even if they get it back down the line), its going to be seen as a tax increase. The only way you could achieve mandatory savings would be to redirect the FICA taxes… and that will only lead to privatized Social Security.
July 18th, 2009 at 3:00 pm
Beowulf (12), yes, a wealth tax is a good idea too, no question about that.
However, my plan does not entail any mandatory donations, they all are purely voluntary donations. And, as a bonus, the organs of executed greedy rich swine can be used to save lives of decent ordinary citizens! There is no downside to my plan, man.
July 18th, 2009 at 3:07 pm
It should also be pointed out medical savings accounts are just one part of the Singapore system. Another important piece of the system is heavy supply-side intervention by the government. The government runs the large public hospitals used by most of Singapore’s population (there are smaller private hospitals, but they have only about 20% market share). This gives the government the ability to bargain down drug prices, regulate against over-treatment, etc. It’s been argued that these supply-side measures play a bigger role in constraining costs than the medical savings accounts, but I’m not sure if there’s a consensus.
July 18th, 2009 at 3:18 pm
So wait the logic is that people waste less money on healthcare when they pay for it. LOL. As if any patient had the slightest chance to figure out what is waste and what is usefull in the “negoatiation” with the doctor, or even any chance to negotiate on price or quality when he is well – sick.
Some things are better not left to the market and a little nudging. Mainly those two that brad de long wants to leave to the market, healthcare and retirment saveings.
July 18th, 2009 at 3:21 pm
A “homo socilogicus” becomes “homo oeconomicus” when personal profit maximication becomes a social norm. This system is like begging the doctors that still stay ethnical to finally start to become greedy profit maximicers. The patients will lose.
July 18th, 2009 at 3:25 pm
The 20%-of-income approach is fine in theory, but it is administratively complex and may encourage gaming the system — e.g. to minimize income in one annual period for purposes of reducing out-of-pocket expense the next year when a likely problem will finally be dealt with. A flat 20% of national median income before the Federal umbrella kicks in — today, about $10,000 — is very simple and everyone knows exactly what they’ve got. Congress can change it periodically. The longer it waits to change it, of course, the more-and-more “single-payer” the system becomes (i.e., as $10,000 becomes less and less in real dollars over time).
The Federal umbrella should in principle be funded through progressive taxation, either out of the basic income tax as it exists (if that is possible), or if we need a new source to mollify the ridiculous centrist Democrats, a percentage surtax on the progressively-established income tax (which will become more progressive under Obama’s plan). The surtax, of course, is the quid pro quo for the very large reduction in private-insurance premiums for supplementary insurance underneath the Federal catastrophic layer that will be caused by capping the insurance company’s exposure. Because the government covers the entire pool of risks and does not charge a profit, the surtax can be significantly less than the premiums you currently pay to have a private insurer cover (and not completely cover at that, what with lifetime maximums) the unpredictable catastrophic losses. Of course, in order to sell this eminently-sensible concept of a dedicated surtax against Republican simple-minded anti-tax propaganda, there will need to be a massive public relations effort demonstrating that this replaces the premium you pay now on that coverage, and is certain to be less than that premium is now.
Progressivity is further served by graduated assistance to lower-income people to purchase pre-catastrophic supplemental insurance. That can be funded in part now by shifting Medicaid and SCHIP for that purpose. In other words, the lower middle class person who pays $2000 in annual Federal income taxes, will now, say, pay $60 dollars more (annaully) in a 3% surtax to help fund the Federal umbrella, and may pay $100 per month with assistance for premiums for supplemental insurance. In contrast, the person with a very high income who pays $100,000 per year in income taxes would pay an extra $3000 surtax and, with no assistance, $300 per month (?) for the supplemental policy that covers costs between a reasonable deductible and a maximum of $10,000 in one year. (The high-income person probably should have the right to do an HSA, too, and perhaps the lower-income person as well with the same assistance as for buying a policy.)
For the same coverage under this scheme, the low-income person has paid $1260, while the high-income person has paid $3000 + $3600, or $6600. That’s fairly progressive. Also note that, if those numbers are remotely close to reality, even the wealthy person should come out way ahead than under the current system, in which, at best, a policy covering everything including catastrophic loss will cost $1000 per month.
Cost competition in the supplemental space would be enhanced by a public option. In order to keep private insurers active in that area, the public option should be limited to funding itself through premiums only, and not using any general tax dollars, just as any other non-profit organization must do. And yes, the Federal role should also include, as a simple matter of public health, free innoculations, mammograms, special-risk tests and other such preventive services for eveyone.
July 18th, 2009 at 3:50 pm
Well, if the plan is supposed to be a dream plan, I don’t see any reason not to bake a progressive taxation scheme in upfront. No version of this could conceivably pass in anything like the US we know in reality, so if we’re going to talk about it as pure policy, we might as well try to talk about the best conceivable version.
You’d have to force employers to pass those savings onto employees, because it would be very easy to just “forget” to give employees that compensation back, since most employees have no idea how much that compensation was to begin with — many employees don’t think of health care as quasi-monetary compensation, they think of it as a service with an unknown cost.
I suspect this wouldn’t be too much of a problem after a sufficiently long adaptation period (3-5 years?)
For professionals, there’s a key job mobility factor in play here. For many people, health insurance is the #1 factor locking them into their job: they can’t afford to go without it due to a family that relies on it, they can’t afford to pay the whole whack if they go on COBRA, and they may not be able to get a good deal (or coverage at all) if they let it lapse. If you eliminate this lock-in, two possibilities open up for many people: shop themselves around to get better offers, or go freelance and see an immediate rate hike, an option that’s far more desirable when health insurance isn’t in the mix. (It also makes it easier for entrepreneurs to start businesses and for said entrepreneurs to offer slight pay raises instead of health insurance to lure employees from big firms, on the margins.) Added together, this stuff should make retention harder and give people a noticeable boost in income even if you don’t think that resolving the information asymmetry in favor of the worker is helpful on its own.
(I’m less certain how effectively this wage discrepancy can be reabsorbed by people in low-wage positions which currently offer health insurance unless they have a union working to get it for them.)
July 18th, 2009 at 4:48 pm
As far as health care goes, I don’t think the plan’s a bad one. However, I wonder about a future in which the healthy are well-off in retirement, and the sickly are not.
July 18th, 2009 at 4:52 pm
Mobile Clinics, count me in. I see them as three car articulated buses, set up for dental or medical specialty. They ride on the Bus Rapid Transit lanes, and we build special Medical Bulb Outs where the Clinic Rapid Transit can park and see patients for the day. Sort of medical parks in central square. Cool idea, really.
July 18th, 2009 at 7:03 pm
But the general idea is that you’d have a menu of services that we really think people ought to get, and those services would not only be made available for free, people would to some extent be nagged to get them.
I’ve long suspected in many instances it would actually meet cost-benefit analysis if we bribed folks to take certain tests: give them a bounty for, say, undergoing a colonoscopy or blood test (or, heck, losing weight).
July 18th, 2009 at 7:05 pm
Beyond DeLong
what’s this nagging business. I have a much better idea. Combined clinic/Casino. You get to gamble if you allow us to measure your blood glucose, cholesterol and pressure (when winning and when losing). Would pay for itself.
Or the public marijuana dispensary where you get your pot but only if you take your statins (would have to be public transit accessible and in a pedestrian only for 10 blocks zone).
Or how about the complete therapy clinic and massage parlor.
There are plenty of excellent ways to attract people and separate them from their money. If they were all legal public and linked to health care we would be healthier.
Oh and don’t forget to take your complimentary pack of condoms on your way out.
July 18th, 2009 at 8:26 pm
This sounds great, if every patient is forced to go through medical school.
If not, poor people will probably neglect their healthcare altogether as they just don’t have very much money. Without any real ability to understand what healthcare is ‘wasteful’.
This is really the problem with people like Matt Yglesias calling themselves ‘progressives’. People who are most concerned with the cost of healthcare, and seek to restrict the healthcare of the poor, are not progressives.
July 18th, 2009 at 9:25 pm
what about the 10-20% un(under)employed (depending on how you are counting)? who’s paying for them?
why is it that every argument for the public option relies on the fact that a mass purchasing agent is the only way to reliably control costs but somehow in this plan the plucky consumers with their HSAs will do the same?
why is it that someone spending all their time in a US economics department thinks that Singapore is a public-policy utopia…and he’s considered ‘left-wing’?
July 19th, 2009 at 9:33 am
Still no. Not only do I not want to fill out a form to get my (sitting in some account not drawing interest) money back from the government, I don’t want to signal to the healthcare industry that their services are worth 15% of my income.
They already think that they’re entitled to massive amounts of money as it is.
July 19th, 2009 at 11:20 am
The plan proposed here would create an incentive to defer and withhold care because the money not spent on health care goes toward retirement. This is really no better than a high-deductible disaster care plan, except for the fact that the deductible becomes an obvious tax shelter. (Of course, extraordinary medical costs are already tax deductible, so the advantage of this new form of write-off is even lower than it may first appear.)
The issue that gets sidestepped in the healthcare debate is that the primary source of additional expense in the US healthcare system is high labor costs. In other words, we pay doctors too much.
In every other system with lower costs, doctors make less money. We overpay ours. Nobody wants to hear that, but as we can see from results abroad, paying all of that extra money here does not necessarily produce better results, which should make us question why we pay that much in the first place.
If doctors were blue collar line workers, we would have slashed their pay a long time ago. I guess that those of us who control the dialogue are also white-collar people who have some affinity for the medical professionals, and are more comfortable cutting the compensation of assembly line grunts than the pay packets of those who remind us of ourselves. But just because we relate to them and their lifestyles doesn’t mean that we’re being fiscally sound in our approach.
Medicine should be a “respectable” profession that allows one to lead a comfortable lifestyle, but those who are looking to get rich should find a different line of work. We simply can’t afford it.
July 19th, 2009 at 10:42 pm
I can’t accept a system that lets the healthy accumulate more money than the unhealthy just because they’re healthy. It’s horribly unjust.
I say this as a chronically healthy person.
July 19th, 2009 at 11:33 pm
Yep, and doctors’ and patients’ opposing incentives – that should work out real nicely too. This plan is so dreadful on so many levels that just talking about it is a kind of transgression againt order, justice, and beauty.